Operations Management (OM): a specialized field of management associated with the conversion or transformation of resources into products and services

• Old term: production and operations management (POM)

• Strategically important

Operations Management

Objectives of Operations Management

4 main objectives of operations managers– Managing product/service quality

– Planning quantity and capacity

– Timing product and services

– Achieving the best possible cost

Managing Quality

Quality: a measure of how well a product or service performs its intended purpose, including:

• How reliable it is

• How easy it is to service or repair when it does break down

• “Fitness for Use”

Why is Quality Important?

Higher quality can lead to:

• Higher efficiency

• Higher effectiveness– Revenues and margins

• Lower costs

• Improves customer satisfaction

• Improved customer retention

Total Quality Management (TQM)

TQM: a management philosophy that:• Focuses on continual improvement• Emphasizes quality inspection at all stages

of the production or service output• Encompasses a commitment from

employees at all levels• Simultaneous achievement of lower costs,

higher quality, and enhanced customer service

Total Quality Management (TQM)

Important TQM concepts:

Statistical Process Control (SPC)Statistical Process Control (SPC)

Continuous Process ImprovementContinuous Process Improvement

Six SigmaSix Sigma

Employee EmpowermentEmployee Empowerment

TQM Concepts: Statistical Process Control

Statistical Process Control: a quantitative tool to aid in making decisions concerning how well a process is performing

• Used to track and highlight results and to identify unacceptable deviations

• Typically involves the use of control charts– Establishes upper and lower levels of

acceptable quality– Products outside limits are investigated

Quality Control Charts

Adapted from Exhibit 13.2

TQM Concepts: Continuous Process Improvement

Continuous process improvement: refers to both incremental and breakthrough improvements in the way an organization does business

• Also known as – Business process reengineering (BPR) and – Kaizan in Japan

• Five key elements:– Objective, Design, Capabilities, Infrastructure, Metrics

TQM Concepts: Six Sigma

Six Sigma: a disciplined, data-driven approach for eliminating defects and enhancing quality with an orientation toward the impact such improvements will have on the customer

• Six Sigma = no more than 3.4 defects per million opportunities

• Quality is improved two ways:– DMAIC process (define, measure, analyze, improve,

control) focused on improving existing processes– DMADV process (define, measure, analyze, design,

verify) focused on the development of new processes

TQM Concepts: Employee Empowerment

Empowerment: the sharing of power with others, where those with high amounts of power increase the power of those with less, especially with regard to decision making

By empowering employees, organizations can: • Engage the expertise of employees• Allow them to feel responsible for quality• Allow managers to understand and

communicate the TQM vision

Quantity and Capacity Planning

• Capacity planning: determining how much a firm should produce of a particular product or service

• Design capacity: the maximum capacity that can be attained under ideal conditions

• Effective capacity: the percent of design capacity a facility is actually expected to maintain

Effective Capacity

Expected CapacityDesign Capacity=

• Materials requirement planning (MRP): a sophisticated computer system that can be used to “get right materials to right place at right time”

• Economic order quantity (EOQ): used to order economical quantity of product so that total inventory costs are minimized

• ABC analysis: categorizes which inventory items require most control and attention

Quantity and Capacity Planning:Inventory Management

Timing Products and Services

Delivery of products and services must be timed well to avoid both “stocks-outs” and excess inventory

• Three important concepts:– Just-in-time (JIT) systems– Gantt charts– PERT and CPM charts

Timing Products and Services: Just-in-Time (JIT) System

• Objective: produce product or service only as needed with only the necessary materials, equipment, and employee time that will add value

• Benefits:– Reduces inventory levels (and lowers carrying

cost of inventory)– Improves productivity– Increases customer satisfaction

Timing Products and Services: Gantt Charts

May June July Aug Sep Oct Nov

Contact clients

Obtain contract specs

Submit bid

Receive feedback

Revise bid

Submit revised bid

Final approval or rejection

Complete bid review

Timing Products and Services: PERT/CPM Charts

StartDevelop

plansSelect

contractorConstruction

Openstore

Preparepermits

Obtainpermits

Tenantapproval

Move intostore

Achieving the Best Cost

• Productivity measures how well an organization is using its resources (inputs) to produce goods and services (outputs)

ProductivityOutputInput=

Achieving the Best Cost: Work Standard

Work standard: amount of time it should take for a trained employee to complete a specific activity or process

• Two work measurement techniques:– Time and motion studies

• Review each activity in detail so that unnecessary steps are eliminated

– Work sampling• Take a sample of workers and calculate percentage of

time spent on each activity during a working day or shift

Achieving the Best Cost: Production Processes

Low

Economies of Scale

High

LowHigh

Flexibility

ContinuousContinuousFlowFlow

ContinuousContinuousFlowFlow

AssemblyAssemblyLineLine

AssemblyAssemblyLineLine

SmallSmallBatchBatchSmallSmallBatchBatch

JobJobShopShopJobJob

ShopShop

Achieving the Best Cost: Production Processes

• Economies of Scale

• Learning Effects– The Learning/Experience Curve

• Flexible Manufacturing Systems– Automation of a production line by controlling

and guiding all machinery by computer– Attempt to capture both economies of scale

and learning effects

Achieving the Best Cost: Technology

• Computer-aided design (CAD) and Computer-aided engineering (CAE)– Computerized systems used to design new products,

modify existing ones, and test prototypes

• Computer-aided manufacturing (CAM)– the use of computers to direct manufacturing

processes

• Designing for manufacturing (DFM) – designing products for ease of manufacturing to

maximize their functionality for customers

Managing the Supply Chain

Supply chain is:• Coordinated system of resources,

information, activities, people, and organizations

• Involved in moving a product or service from raw materials to components

• Into a finished product or service • Delivered to the end customer

Manufacturer

Distributor

Retailer

Customer

Suppliers

Managing the Supply Chain: Using Technology

• Electronic data interchange (EDI): the integration and real-time exchange of supply chain information that allows supply chain managers to manage complicated relationships and processes

• Web-based systems